Chancellor Rachel Reeves has reportedly scrapped plans to introduce a British ISA made by the former Conservative government, according to the Financial Times.
The measure would have given investors a £5,000 tax-free allowance on top of the £20,000 of the Stocks and Shares ISA, to invest exclusively in British businesses. The goal was to encourage money into the domestic market (from which it has been haemorrhaging) and reinvigorate UK businesses.
Advocates of the measure included Gervais Williams, manager of the Premier Miton Multi Cap Income fund, who spoke to Trustnet last year about the potential “profound” effect of the British ISA on the market.
Today, he was “a little negative” at the news of it falling through, but drew “the only conclusion you can possibly come at”: that the government must have more ambitious plans.
“The British ISA is a pimple for the government and we shouldn't all get hung up about individual pimples. The direction of travel is much more substantial and it must be so strong elsewhere that they don't need this,” he said.
“If they have changed their mind on this, fine, they must have some bigger plans rather than smaller ones. That's the only conclusion you can possibly come to.”
More significant changes must come through on the pension funds side rather than “just the saving product”, said Williams, whose hope rests in MP Emma Reynolds and her “considerable ambitions” to change the pension landscape. The issue should be “easily consensual” because the UK is “absurdly” out of line with other global economies.
“The US would never let most of its capital go internationally by listing elsewhere,” said Williams, a practice all too familiar on this side of the Atlantic.
A pension schemes reform is “cross-party” and “an easy win” that could have “significant impact with very little costs – and without raising taxes”.
Not only that. Williams suggested smaller companies will contribute more towards tax office revenues than larger ones.
“It’s all very well to reinvigorate Shell, but if Shell does better, it's going to make very little difference to the UK. Smaller companies generate local skilled employment, improve productivity and boost wages faster than inflation so that we can pay our energy bills,” he said.
“And importantly, when they succeed, they don't end up putting all their tax into Cayman Islands accounts, but into the local exchequer’s.”
It is “all very logical” to Williams, who said that Reynold’s proposal is going to be “very substantial when it comes”. As to when it might come, he was less certain.
“It’s a complicated agenda. Reynold is talking about the end of the year, but it might slip into the next. You don't want to make missteps.”
Meanwhile, on the other side of the argument, platforms spokespeople rejoiced. They have consistently highlighted how the added complexity of yet another ISA account in an already-complicated landscape would have done more harm than good by discouraging people from investing.
James Carter, head of platform product policy at Fidelity International, said ISA simplification is “paramount in fostering an environment that promotes investing and long-term saving”.
“Many people find it difficult to identify which products best suit their saving or investment needs and struggle to manage their savings across different ISA types. New financial products must be developed with consumers’ needs at their core,” he said.
The British ISA would therefore have also limited the economies of scale that providers can offer, stifling innovation and raising costs for consumers.
His alternative proposal to support consumers to transition from a cash-savings culture into longer-term investing could be combining Stocks and Shares and Cash ISA products as well as improving the ease of transfers.
“Short-term needs are well served, but it leads to consumers holding large cash balances for too long, missing out on higher investment returns,” he concluded.